The recession shade is casting a pall over the US equities market over recent weeks (1). More Wall Street houses are starting to get behind this critical analytic position as outlooks gray for economic titans like Walmart, Target, and Cisco over recent days due to continued supply chain issues, rising inflationary pressure, and tightening monetary policy (2).
But the stock market is a discounting mechanism – many of the big drops may have already happened, especially in speculative growth themes like cryptocurrency, cannabis, AI, genomics, and green energy.
The old Wall Street maxim, “sell the rumor, buy the news”, could be increasingly operative for investors in the months ahead.
That may mean it’s time to start making a shopping list of oversold growth investment ideas as the blood runs red on The Street.
One area of the market where the blood has run perhaps the reddest even as long-term growth prospects remain intact is in the cannabis sector, where we continue to see strong legislative and mainstreaming tailwinds dominate the secular picture. A good example is the recent move by the US House of Reps to pass the Marijuana Opportunity, Reinvestment and Expungement Act (the “MORE Act”), which was sponsored by House Judiciary Committee Chairman Jerrold Nadler (D-NY). The MORE Act effectively targets the removal of cannabis from the federal list of controlled substances (3).
The bill will move to the Senate before long, and passage there would be a potential game-changer for the cannabis space (4).
Yet stocks in the space have been mired in a deep discount bear trend for most of the past year. The contrast is striking and could present a potential opportunity.
With that in mind, we take a look at some of the most interesting stories in the cannabis space below.
Tilray Brands Inc. (Nasdaq:TLRY) bills itself as a global cannabis-lifestyle and consumer packaged goods company with operations in Canada, the United States, Europe, Australia, and Latin America.
The firm is focused on medical cannabis research and the cultivation, processing, and distribution of cannabis products worldwide. Its products include dried cannabis and cannabis extracts. It operates through the following segments: Cannabis and Hemp. The Cannabis segment consists of adult-use, medical and bulk sales of cannabis under regulated licenses and sold to retail, wholesale, pharmacy, government, and direct to patient. The Hemp segment consists of hemp seed, hemp foods, and broad spectrum hemp extract containing CBD, which are sold in an unlicensed operation and sold to retail, wholesale and direct to consumers.
Tilray Brands Inc. (Nasdaq:TLRY) recently announced the expansion of Good Supply’s best-selling cannabis portfolio with the launch of new high-potency products including liquid wax vapes and exclusive new flower strains that will be available in select markets across Canada.
According to the release, Good Supply’s new cannabis flower offerings include Sweet Berry Kush and Monkey Butter, both unique high-THC Indica strains will be available in 3.5G and 28G bags. Good Supply’s new liquid wax vape cartridges are formulated with a powerhouse blend of butane extracted concentrates including full-spectrum wax, THC distillate, and strain-specific cannabis terpenes for a pure true-to-flower taste. Unlike a standard cannabis vape cartridge, the Good Supply liquid wax vapes are made to emulate ‘dabs-to-go’ with a true to dab experience and an extra kick of THC for the concentrate enthusiasts. (5)
The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 18% in that timeframe.
Tilray Brands Inc. (Nasdaq:TLRY) managed to rope in revenues totaling $151.9M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 195.4%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($279.2M against $282.4M, respectively).
Nutranomics Inc. (OTC US:NNRX) is an interesting new name in the space. This one could really explode onto the scene if everything lines up just right given its recent moves.
NNRX frames itself as a company “committed to excellence in organic plant-based nutritional science and innovation. That was our stance when we began in 1996, and it is still our stance today.” But the growth picture is likely to get a whole lot more concrete after the company’s latest announcement.
Nutranomics Inc. (OTC US:NNRX) announced this week the completion of its 100% acquisition of DHS Development, Inc. (d/b/a “The Plant”), and Affiliates.
“This transaction positions the Company for significant upside potential as an emerging leader in the vertically integrated cannabis products space,” commented Jonathan Bishop, CEO of NutraNomics.
According to the company’s release, its acquisition of The Plant includes the lease of a 30,000 square foot manufacturing and 28,000 square foot cultivation facility. In addition, NutraNomics has also already acquired over $2 million in related specialized equipment and continues to invest in productive hard assets for expanded operations involving extraction, production, and materials.
As noted, there are already significant operations in the fold: in 2021, The Plant generated $1.7 million in revenue operating from temporary facilities while the new building was under construction. During the first quarter of 2022, manufacturing was transitioned into the new facility, and the Q1 revenue run rate expanded to $879k (approximately $3.5 million on an annualized basis). The overall forecast for 2022 is $15 million in total top line sales, making the company cash flow positive through expanded product lines, including beverage powders, tablets, infused pre-rolls and concentrates. All necessary licensing is already in place for manufacturing, distribution, and sales of these new product lines. (6)
Nutranomics Inc. (OTC US:NNRX) CEO Bishop added, “The Plant represents a vertically integrated operation with tremendous scalability. We look forward to providing more details in the very near future.” One to watch.
GrowGeneration Corp. (Nasdaq:GRWG) engages in the retail of hydroponic and organic specialty gardening products.
GRWG offers lighting fixtures, nutrients, seeds and growing media systems, trays, fans, filters, humidifiers and dehumidifiers, timers, instruments, water pumps, irrigation supplies, and hand tools.
GrowGeneration Corp. (Nasdaq:GRWG) recently announced that select stores will begin selling Drip Hydro. Drip Hydro was developed by Rex Gill, founder of Power Si, the original patented formula of mono-silicic acid for crops, along with Robert (Bear) Masterson, the former owner of The Harvest Company. Drip Hydro was designed to improve quality, reduce costs, and drive consistency. After extensive testing, and great results from some of the best growers in the industry, Drip Hydro is now available for all growers to achieve optimal results with every harvest.
“Investing in nutrients can be expensive and confusing, and some products can even destroy growers’ equipment. With collectively over 30 years’ experience in the cultivation industry, the team supporting this new line knows how important a simple, clean, and affordable nutrient product is for our customers to give them back time, money, and peace of mind. Drip Hydro is one of the most exciting new nutrient products to hit the market and GrowGen is proud to have this new line in our GrowGeneration stores and on GrowGeneration.com,” said Darren Lampert, CEO of GrowGeneration. (7)
The chart shows 33% tacked on to share pricing for the stock in the past week, a rally that has pushed up against longer standing distributive pressure in the stock. What’s more, the listing has seen a growing influx of trading interest, with the stock’s recent average trading volume running 57% beyond what we have been seeing over the larger time frame.
GrowGeneration Corp. (Nasdaq:GRWG) has a significant war chest ($81.2M) of cash on the books, which must be weighed relative to about $47.1M in total current liabilities. GRWG is pulling in trailing 12-month revenues of $422.5M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 46.3%.
Other key names in the cannabis stock space include Aurora Cannabis Inc. (Nasdaq:ACB), Sundial Growers Inc. (Nasdaq:SNDL), Canopy Growth Corp. (Nasdaq:CGC), Cronos Group Inc. (Nasdaq:CRON), and AdvisorShares Pure US Cannabis ETF (NYSEArca:MSOS).
References:
1. https://www.forexlive.com/news/wells-fargo-says-a-mild-recession-our-base-case–20220518/
3. https://www.mcguirewoods.com/client-resources/Alerts/2022/4/more-act-advances-congress
5. https://finance.yahoo.com/news/good-supply-brand-expands-high-110000206.html
7. https://finance.yahoo.com/news/growgeneration-debuts-drip-hydro-complete-123000691.html
